Subject: On 21 February 2005 the Moroccan government will invite tenders for long-term leases on 56,000 hectares of farmland spread throughout the country. This is the first batch of a total of nearly 130,000 hectares owned by Sodea and Sogeta, two public sector companies. Depending on the outcome of the tender, all of this land could end up on the market.
Summary: The area offered for tender is the equivalent of 100,000 football pitches and represents an interesting business opportunity. It is also an opportunity to strengthen Moroccan-European relations in a sector that is the backbone of the Moroccan economy and an area of great sensitivity for the European Union.
Analysis: This is the first time the Moroccan government is bringing the agricultural sector into its privatisation plans, in this case under the official formula of private sector management. Until now the sector had been seen as a matter of state concern, closely identified with the start of Moroccan independence some 40 years ago. At that time land held by colonists (mainly French but also some Spaniards) was expropriated and distributed to Moroccan farmers. The two corporations, Sodea and Sogeta, were set up when expropriations accelerated in the 1970s. Sodea (Société de Développement Agricole) was set up in 1972 to manage the land that had been ‘recovered’ earlier. Sogeta (Société de Gestion des Terres Agricoles) was incorporated specifically to take over the colonised areas that were ‘recovered’ under the dahir of 2 March 1973.
Sodea has 56,754 hectares of which only 375 are leased out to third parties and another 6,761 hectares are ‘wine-producing partnerships’ with third parties. The rest is directly managed by the corporation. For its part, Sogeta has 67,672 hectares of which it directly manages 47,540 hectares.
Following the expropriations, foreigners in Morocco lost the right to own farmland; the only thing they could do was rent it. For this reason foreign investment in the farming and food sector since then has been modest when compared to the country’s potential. At the beginning this vacuum was occupied by the above two major public corporations operating in the farming sector. But after several decades their inefficiency compared to the country’s possibilities is patently apparent. In recent years Morocco has not been able to fill all its agricultural produce quotas with the European Union and the two corporations have been losing money. Sources close to the Moroccan government say they have been running a combined deficit of around 200 million euros. The uncertainty surrounding the figure suggests that it could be much greater. Broadly speaking, this means that Morocco is some distance away from achieving agricultural self-sufficiency and from taking full advantage of its trade relationship with Europe.
This situation will be further challenged by the free trade agreement signed with the US on 15 June. The agreement includes zero duty on much of Morocco’s agricultural output. Indeed, 90% is duty-free from the first day the agreement came into effect. This reflects the general terms of an agreement under which the US is waiving duty on 6,966 items of the 7,052 items in its entire import classification list.
A good part of these farm products are hardly grown in Morocco but in other cases it has obtained better conditions from the US than those obtained by the member states of the EU. Broccoli is a good example. When exported from Spain to the US it pays approximately 20% duty but from Morocco it is duty free. These circumstances provide European broccoli farmers with an obvious opportunity and they make it practically obligatory to invest in Morocco if they are already exporting to the US –a market which they stand to lose–. From the Moroccan perspective, this also creates an opportunity that can only be realised if an investor with sufficient knowledge of the crop and the US market sets up in Morocco. Such know-how is essential given the strict rules governing food matters in the US. Farmland must be made available for this purpose and if, as appears the case, this could be the land held by Sodea and Sogeta, it would also solve the government’s deficit problem.
These reasons are behind the tender invitation for 21 February and have had a greater weight than the farming sector’s symbolic value, even if this implies a tacit recognition that nationalist and state-run agriculture has failed.
When weighing the economics of this operation, it should be noted that although these 56,000 hectares are losing money, they are already productive. They have easy access and in many cases they have water and other basic infrastructures, which means they can be immediately productive. The land has been divided into 208 lots with an average size of 265 hectares –although some are more than 1,000 hectares–. A few even have agro-industrial facilities that are included in the lease. The plots are located all over the country except in the three southern provinces. They are used for growing a wide range of products from flowers to citrus fruit, including olive trees and vines. The Moroccan government has put up a website with detailed information at www.agripartenariat.ma.
It is already established in the bidding process that price will play a minor role. The minimum is fixed at market price less 20%. Sources close to the operation explain that the state will gain simply by getting rid of the deficit generated by this land and will therefore not be too demanding. The type of crop and the investment required will be the deciding factors.
Depending on the results of this process, other lots may be made available and this may happen immediately. One of the aims is to clean up the balance sheets of the corporations involved. Part of their debt has been settled by selling some of the land they held close to urban centres. By the end of last September they had already sold 1,140 hectares to government real estate organisations. The funds obtained were used to restructure the personnel affected by the land to be leased. This reduced the payroll by 3,234 employees. The remaining funds were used to cover part of the debt with social security and with various financial entities.
Spanish companies have an important initial advantage in this bidding process as the crops grown on either side of the straits of Gibraltar are very similar. It is difficult to imagine a German capable of growing mandarins –or an Englishman for that matter–. In reality it is highly unlikely that businessmen from the more powerful European countries would be interested in this opportunity because their agriculture is of a different kind. In fact, the Moroccan newspapers even considered the possibility of a ‘flood of Spaniards’ (L’Economiste, 9/IX/2004, see http://archives.leconomiste.com/article.html?id_journal=1850&a=57964).
If the operation goes through, it will have a soothing effect on Morocco’s relations with Spain and Europe. Apart from the business ramifications of a Hispano-Moroccan rapprochement, it would increase the possibility of international expansion for other parties such as equipment makers and agricultural suppliers. If the programme is a success it would also open up new development possibilities in the Moroccan countryside, slowing the fast pace of exodus from rural areas –one of the factors underlying illegal emigration–. On the other hand, the most important aspect in this operation is that it affects the farming sector and this is precisely the sector most susceptible to friction between Morocco and Europe. It seems evident that a greater presence of European farming entrepreneurs in Morocco would provide grounds for reflection, cooling the excessive tension with which this sector reacts every time Moroccan quotas are enlarged. Such reactions are sometimes reasonable but they also seem to be exacerbated by the lack of balance between Europe and Morocco in agriculture matters. Morocco is allowed free access to the European market through a system of quotas but European producers have no reciprocal right of free access to land. Europeans are only allowed to lease Moroccan land and until now, this option was an academic one due to the shortage of available land. Unfortunately, the tensions in this sector have been painting a generally exaggerated picture in which Moroccan agriculture may become a problematic rival. In reality not even the tiniest part of this unfounded fear will ever materialise due to permanent geographical and hydrological constraints.
In fact, a single European country, Spain, has an area of agricultural land that is several times that of Morocco. It is even greater than that of the entire Maghreb added together. This is surprising because Spain’s surface area is only 0.5 million km2while that of the Maghreb is 4.7 million km2. And that is without counting the tremendous difference in productivity between the two areas.
In 1999 (the latest available figures) useful agricultural land (UAL) in Morocco was 9.2 million hectares, approximately 13% of the country’s total area. Of this amount only 7 million hectares are actually under cultivation and 1 million hectares are irrigated. The latter figure is treated with scepticism by various experts. Most of this land is used for cereals, which account for approximately 75%.
The UAL of Algeria is slightly less with 8.6 million hectares, accounting for only 3% of the country’s land area. Tunisia has 4 million hectares of agricultural land which is 25% of its total area; however, only 2 million hectares are actually under cultivation of which 0.36 million hectares are irrigated. Like Morocco, cereals account for the major part with 50%. The UAL of Libya is 2.1 million hectares and this is scarcely 1% of the country’s surface area. Only 0.1 million hectares are irrigated.
The aggregate of the above figures is less than Spain’s UAL of 30.1 million hectares, of which 19.1 million are actually under cultivation, with 3.3 million hectares being irrigated. Furthermore, this figure will have to be revised upwards in coming years depending on the implementation of the Spanish hydrological plan.
The notable difference between Spain’s agricultural potential and that of the Maghreb belies the supposed threat that Maghrebi agriculture poses for Spain. It cannot be considered a source of competition even in terms of farming area. At the present time the Maghreb has a negative trade balance in agriculture and the best it can hope for is to reduce the deficit. This does not mean that Morocco does not pose a potential threat to Spain in certain crops –but these are exceptions rather than the rule–.
Conclusions: the leasing of public farm land in Morocco or, if you prefer the official term, ‘private sector management’, could be an interesting business opportunity. And if it is brought about by European businessmen it could also strengthen Moroccan-European relations in a sector which is the backbone of the Moroccan economy as well as a sector of great sensitivity for the European Union.
Probably the greatest obstacle to this plan consists of European and Moroccan prejudice. For instance, Abdelmounaïm Dilami, editor of L’Economiste, the only business newspaper in Morocco, recently wrote that ‘everyone is aware that a small anti-Spanish lobby has emerged after the last crisis. This lobby in no way benefits Moroccan interests and it would be foolish to allow it to take root’ (L’Economiste, 23/IV/2004, see http://archives.leconomiste.com/article.html?id_journal=1754&e=1689). On the European side it should be remembered that with few exceptions, farmers are not part of the sophisticated business elite who are capable of handling foreign environments with different languages, legislation and customs. They are scarcely familiar with the basic instruments of international expansion such as the reciprocal investment protection and promotion agreement between Spain and Morocco, Cesce’s investment guarantees and the hedging of exchange rates that is required when operating in foreign currencies.
Director of the consultancy Mercados Emergentes